Poor advice from pension companies, and a lack of knowledge among consumers, is having disastrous consequences for those approaching retirement, according to HFM Columbus.
Choosing the right annuity is the most important financial decision older investors are likely to make, the firm says, and many are too quick to choose products offered by their pension provider, rather than use the open market option (OMO).
Marcus Carlton, director at HFM Columbus, says insurance companies often simply offer a standard annuity to pension savers as they near retirement, without evaluating what a client's circumstances.
"Rather than going for a standard annuity - which may not be competitive - we would suggest looking at options such as a fixed term annuity, whereby your pension fund can buy a 5 year annuity and receive 83% of the purchase price back after 5 years," he explains.
Carlton says a lot can change for older people in five years, with many seeing their health decline significantly, allowing them to consider an enhanced annuity later in life.
"The income may be very slightly less, but you do get the opportunity to revisit the decision in five years' time, when your circumstances may be very different," he adds.
Most consumers don't understand the complexities of the annuity market, according to HFM Columbus, and should be encouraged to seek expert advice to ensure they get the most suitable income product for their circumstances.
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]IFAonline
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